Sometimes for decades the farmer was happy getting those monthly royalty checks. They more than covered the real estate taxes (as well as the personal property tax on the royalty interest) and made for quite a nice nest egg, going into retirement accounts, paying for Vegas vacations, and so on. But then a real estate agent would come along. That quarter section that was worth $300 an acre not so long ago could be sold for $15,000 an acre to a developer wanting to build houses or maybe an industrial park, whatever. All of a sudden he’s looking at $2.4 million, but only if the property is free and clear of the oil lease.
So he calls up the lease operator. “Say, thanks for those royalties all these years, but, well, I need you to clear out so I can sell the property.”
One sort of operator will figure up what the lease is worth, figure up the plugging and abandonment costs, and give the farmer a figure. “Pay me $150,000 and I’m outa here.”
One sort of farmer will agree the lease is worth about that, or maybe negotiate about it, and they’ll agree on a figure and they both part ways with the property, each with a nice bundle in his pocket. Another sort of farmer will get himself a lawyer who may or may not know anything about oil and gas law, but either way then sues the operator to cancel the lease. Spending $50,000 or so to get rid of the oil lease in court is a lot cheaper than paying the operator $150,000; and the operator may not have the kind of war chest to litigate the issue in court.
Another sort of operator, rather than figuring up what the lease is actually worth, may see the opportunity for a windfall. Knowing there’s $2.4 million on the table, he may offer to clear out for $750,000, or maybe even $1 million. He probably knows more about oil and gas law than either the farmer or the farmer’s lawyer, quite confident his lease is making “paying quantities” and knowing he’s going to win if the farmer wants to try judicial cancellation.
And so it goes. Skyrocketing land values at the same time as skyrocketing oil prices. When reasonable minds prevail over greed, both can realize quite a nice bundle out of their respective interests in the land. Unfortunately, with this kind of money on the table, greed is a tempting mistress. Even more unfortunately, from my perspective, what drives the matter into court may not be so much the greed of one or the other of the principals, but the greed of at least one or the other of their lawyers. Why I’m getting burned out with the profession – law business any more seems all about the firm’s bottom line, without regard to the client’s bottom line. Cases are taken on the basis of how much revenue they can generate for the firm; not on the basis of achieving a fair and just outcome for the client. Making it worse – the clients who deserve the kind of lawyers they get. It unfortunately means somebody else is forced into paying a lot of fees he ought not have to pay, if there was any justice out there. Too many judges aren’t helping the situation, letting lawyers run up the fees when they could be clamping down on some of the tactics employed.